UPS Strengthens Its EU Presence

Where are all those big brown United Parcel Service trucks I used to see all the time all over American streets? I remember asking myself this exact question several years ago when I first moved to Barcelona. UPS had become such a fixture in my mind's eye that it was a bit of a culture shock to not see the square vehicles as often as I previously had.

Eventually, I grew used to seeing DHL envelopes, MRW delivery vans parked on the side streets, and other companies' logos moving products around the region. I stopped dwelling on the who's who of the local market's logistics. Until last week.

Last week, a few business headlines flashed across my screen, and the old question about the company's European presence popped back into my head. This time, I thought, "Ah, fun. Logistics just got more interesting here."

UPS announced that it was buying Dutch-based TNT Express in an all-cash deal valued at about $6.9 billion. It's a sweet deal for TNT Express -- UPS is paying $12.61 per ordinary share for TNT, a 53.7 percent premium over the company's unaffected share price of $8.24.

But it's an even sweeter deal for UPS for a couple reasons. One is that it will have bigger slice of the European express delivery market. And, two, because of TNT Express' business inroads, UPS will strengthen its existing operations in fast-growing Latin American and Asia Pacific countries, namely Brazil and China.

Here's a snapshot of what the numbers could look like, once regulators approve the bid, according to a statement from TNT Express:

The transaction will create a combined entity with more than €45 billion ($60 billion) in annual revenue;

UPS estimates that the transaction will deliver an annual run rate of approximately €400 to €550 million ($525 to $725 million) of pre-tax cost synergies achieved by the end of year four after closing; and

Following the transaction, around 36 percent of the combined group’s revenue will be generated outside the United States, up from 26 percent today at UPS.

The Motley Fool [log-in required] and the BBC -- citing research from various research organizations and company data -- sketched out these likely scenarios for express and normal package delivery:

The acquisition will increase UPS's share of European express deliveries to around 17.3 percent from the current 7.7 percent...This will also bring it closer to Deutsche Post's DHL unit, which holds 17.6 percent market share, and leave FedEx with a measly 3.3% share in the European region.
In terms of package delivery from Asia-Pacific to Europe, DHL is the dominant player, with more than 30 percent market share, followed by FedEx which has 25 percent...Both UPS and TNT have individually lagged behind the competition. However, as the two firms join hands, their combined market share of 28 percent will make them the second-biggest in the region and pose a serious challenge to DHL for the top slot.

In the bigger scheme, what does it mean? For electronics companies, increased competition will most certainly lead to more competitive pricing. For Europeans, the landscape is going to be shuffled as a major US player claims a bigger stake in local operations. And for me, it's like a little piece of home literally arrived on my doorstep.

Yes, that is exactly how it happened, little note and move on. :) I am thinking if this good or not. I mean, with how many things we do this, some of them which could be important to pay a little more attention to, or even give them some thought? We could be missing somethig.

These guys have it in them to challenge and slug it out for market share with UPS.

After all,US Postal Service in fact even has Taxpayer support(so they can maintain infrastructure in places where others can't because its uneconomical).This gives them a massive edge over the Competition.Same goes for Postal Services in Continental Europe like France Post.

Funny how that works, huh? Eyes and brain register something suprisingly out of place, we make a note of it, and then move on. Guess you'll be getting re-used to seeing the brown trucks rolling through your neighborhood.

Not too clear about EU's antitrust issues, but UPS won't be the only company in the market. Besides FedEx, there are a number of smaller and mid-size regional players, and let's not forget that Deutsche Post DHL is still a dominant competitor.

I think UPS has a pretty good chnace of duplicating its service model, particulalrly since TNT is supposed to have a strong infrastructure in the EU. I hadn't thought about anti-trust issues, though. In the US, certain services can be cut out of markets where one company dominates. But I would think as long as FedEx exists, there will always be viable competition for UPS.

"and UPS has a variety of 2nd and 3rd day deliveries that are less expensive"

@Barbara: I think that's the niche market UPS has captured where they compromise on the delivery time but win with the cost. This may be true in markets where the consumers are more sensitive towards the price. I wonder if they can continue with the same strategy in the new regions they are entering into.

Increasingly, mobile devices are touching every corner of the ordinary human life. The same trends driving this phenomenon will also touch every corner of the electronics supply chain and many business-to-business interactions.

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